Value relevance of accounting information in Morocco: impact of profitability and earnings management strategies

Abstract

Purpose

This study examines the value relevance of accounting information for publicly listed Moroccan companies and analyzes how profitability affects stock market valuation. Additionally, the study explores earnings management strategies used to avoid losses and earnings decreases.

Design/methodology/approach

Empirical tests use the Ohlson (1995) Price model to assess the extent to which accounting information explains variation in stock prices for the period 2012–2021. Moreover, the study applies the Burgstahler and Dichev (1997) approach to analyze earnings management strategies used by listed Moroccan companies.

Findings

The findings suggest a positive and significant relationship between the book value, net earnings and the market value of stocks. Additionally, profitability is identified as a crucial factor significantly influencing the relevance of accounting figures. Moreover, the analysis of the distribution of earnings reveals that listed Moroccan companies engage in earnings management to avoid losses and decreases in earnings.

Practical implications

The findings hold practical significance for investors, corporate leaders, accountants and stakeholders relying on accounting information for decisions. They also offer insights for Moroccan stock market regulators to improve accounting quality and market efficiency.

Originality/value

The study shows the extent to which stock prices reflect the accounting information from an emerging country perspective, contributing to a predominantly unexplored area of literature regarding economies in transition. Moreover, the study offers crucial insights into the influence of profitability on the market value of listed Moroccan companies and sheds light on the utilized earnings management strategies.

Citation

Ibrahimi, M. and El Baghdadi, F. (2024), "Value relevance of accounting information in Morocco: impact of profitability and earnings management strategies", Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MF-03-2024-0147